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Wednesday, 26 February 2014

Dyman & Associates Insurance Group of Companies: The Rise in Insurance Fraud and How to Combat it

Recently, members of a Florida ring accused of staging
fires and floods to make fraudulent
home insurance claims were arrested. The suspects are accused of bilking
homeowners insurers out of $7 million. Paul Bermingham, executive director of
Xchanging Claims Services, a $1 billion business processing, procurement and
technology services provider for the global insurance industry ,
explains why the industry needs to adopt a more holistic approach by
incorporating a range of different measures that take advantage of technology
and demand cultural and behavioral changes.

·How
prevalent is insurance fraud in the U.S. compared to other countries?

According to the National Insurance Crime Bureau (NICB),
cases of suspected fraud in the U.S. rose 27 percent from 2010 through 2012,
reaching more than 100,000 questionable claims. Fraud costs U.S. property and
casualty insurers approximately $30 billion annually. Just look at the recent
example that occurred in Miami, Florida in February. Twenty two people were
charged in a major home insurance fraud ring totaling about $7.6 million in
losses from various insurance
companies. At least 17 fake home damage incidents such as fires and floods
were staged and false claims were paid out to the fraudsters. This is just one
example of many. In 2012, home insurance fraud in the U.S. was the second most popular type
of fraud with 17,000 questionable claims made.

In the UK, the Association of British Insurers (ABI)
cites that insurance fraud is currently more than a $1.6 billion a year
industry with an average of 2,670 fraudulent claims made every week in the UK.
The problem is also significant in Singapore as well, with the General
Insurance Association of Singapore estimating that 20 percent of all automotive
insurance claims paid (about $140 million) were fraudulent. Now, more than ever
before, it is crucial for our entire industry – regardless of region – to
protect itself and its honest policyholders.

·What affect
does fraud have on the industry?

Fraud has a negative effect both on insurance companies
and consumers. Insurance companies are all too aware of its ability to grossly
erode profit margins, not to mention the hours staff spend on efforts to combat
the fraud, and consumers see their premiums rise.

·What are
the type five most common types of fraud in the US?

The NICB found that automotive fraud was most prevalent,
followed by home, workers’ compensation and employers’ liability, commercial
automotive, and commercial general liability.

Insurance companies have taken steps to improve the
ability to identify and address fraudulent claims, but these efforts are
typically fragmented. Because of the lack of a collective industry approach –
most carriers work independently. In relation to technology, insurers sometimes
lack the proper data mining system to help identify potential fraud and the
business processes to follow up on flagged claims activity. Another major issue
prohibiting the discouragement of fraud is consumers’ tolerant attitude toward
insurance fraud. And finally, it’s a challenge because insurance lends itself
well to many different types of fraud. While the vast majority of fraudulent
acts relate to first party fraud (such as is the case with the Florida fraud
ring), third party fraud is also quite prevalent.

·Has there
been a shift in consumers’ attitudes toward instances of fraud then?

Many consumers are surprisingly tolerant about the idea
of defrauding their insurer. A 2008 survey by the Coalition Against Insurance
Fraud found that one in five adults in the US – that’s around 45 million people
– felt that it was acceptable to defraud insurance companies under certain
circumstances. Many of this group would probably be horrified to be labeled as
‘fraudsters,’ but yet they still harbor the Robin Hood mentality.

What are insurance companies already doing to try to stem
the tide?

As the number of fraudulent claims continues to rise,
fraud management has moved higher on the priority list of senior management.
Some companies have invested in improving data quality and adopting technology
tools, but many still lack the business processes, workforce competencies, and
organizational structure needed to act on the insights gained from data
analysis. Other companies have worked to enhance their operating model, but
have failed to develop a clear strategy of what they hope to achieve.